How to Use Our Spread Analyzer

The Spread Analyzer can be found right here.

Produced by Jennifer Galperin. Follow me on Twitter and StockTwits.

Comments

[John Hall]

So what is the reasoning behind using dollar neutral. Wouldn't you want to use marketcap neutral?

[Jennifer Galperin]

Hi John, thank you for your question. There are different theories on how to remain neutral with spread trading. Some people trade dollar-neutral, others beta-neutral, and still others marketcap-neutral. We like dollar neutrality because it is simple to calculate and we have found that it produces profitable trading results. Unlike beta-neutral, it is objective.

Market-cap neutral can result in increased volatility in the portfolio because very small-cap stocks will receive a large weighting. This can be avoided by introducing a scaling factor (for example, a using multiplier for market caps below a certain threshold) but then subjectivity a problem. The trader can set a floor for the market cap of the stocks he trades, but this can eliminate some profitable setups. Do you trade marketcap-neutral? What are your thoughts on these issues?

[Ecommerce Software]

Spread analyzer is very helpful in blogging. It can conveniently process the data on the spread, and it is reliable in processing statistics.

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[Kyle Carter]

Jennifer,
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